The current methods of tax revenue collection are susceptible to nonpayment, delays, and errors, and make it quite difficult to reconcile withholdings. The actual transfer of funds representing withholding amounts, whether transferred electronically or by mail, often does not occur or is delayed days or even months after a payroll check is issued and the tax withheld. This nonpayment and/or time lag is accountable for 50 to 100 billion dollars in tax revenue loss per year to the U.S. Treasury.
The payroll check has been in widespread use for almost 50 years. It provides a mechanism for most employers to disburse their payroll efficiently. The employer computes the employee's net pay, which is the gross pay less deductions for items such as FICA, federal income tax, state income tax, local income tax, insurance premiums, retirement deductions, etc., and records these amounts on a standard payroll check stub. The payroll check contains only the net amount (gross amount earned by the employee less all deductions).
Banks collect and transfer federal withholding tax payments from employers. The employer or their designated agent fills out a particular Internal Revenue Service (IRS) form. This IRS form and check for the amount specified on the form are "deposited" at a Federal Reserve Bank or a designated bank. The withheld funds have a due date defined according to a complicated schedule depending on the size of the business and other factors.
The funds for federal income tax withholdings are transferred electronically to the New York Federal Reserve Center and the information on the IRS forms are electronically forwarded to the IRS Headquarters in Washington, D.C. The information on the forms forwarded to Washington must be reconciled with the funds electronically transferred to the New York Federal Reserve Center. Reconciliation is performed in the aggregate. No independent sources are checked to determine the accuracy, completeness or timeliness of the deposited federal income tax withholding information for individual taxpayers. In some instances, such as for the payroll of large corporations, intermediate parties process the forms and deposit the funds for the employer into the Federal Reserve bank system.
The state government income tax collection agencies use similar procedures as the federal government, and suffer similar nonpayment and/or delayed payment problems.
In addition, the IRS collects up to 11 different types of withholding, from standard income tax withholding and FICA to Railroad Retirement and Federal Retirement amounts. To make these transfers, the IRS requires a specific 7 data item format for electronic transfer of the withheld amounts and account numbers depending on which type of tax the withholding amount represents.
The present invention is designed to simplify the tax withholding procedure and consolidate it into a single computer transaction for each employer on a daily basis.
There are very few systems and methods for multiple payees known. U.S. Pat. No. 1,198,936 and U.S. Pat. No. 1,240,255 relate to a multiple payee, carbon paper-based deposit slip. All of the payees denoted on the multiple payee slip must belong to the same financial institution for the deposit slip to be effective. This type of device has very little practical application in the computerized society of today. Moreover, the deposit slip does not embrace the allocation and/or payment of withholding taxes and is not negotiable between banks or financial institutions.
There is no system or method heretofore known in which computer processing, image processing and telecommunications are employed to achieve multiple account transfers of taxes and other withholdings from a single payroll trust check.